Foreigners Boost Japan Government Bond Holdings to Record High

Foreigners boosted their investment in Japanese government bonds to the most on record last quarter, adding to the effect of the Bank of Japan’s purchases in suppressing yields.

Overseas investors increased their holdings of sovereign securities to 102 trillion yen ($833 billion) as of Sept. 30, up 17 percent from a year earlier, the Bank of Japan said Thursday in Tokyo as it released its flow of funds data. That accounted for an unprecedented 9.8 percent of the total debt available. The Japanese central bank maintained its role as the biggest holder of JGBs, with a record 315 trillion yen, or 30.3 percent of the total.

“The BOJ’s buying and demand from foreign investors are leading the downward pressure on yields,” said Naoya Oshikubo, a rates strategist at Barclays Plc in Tokyo. “For foreign investors, swapping dollar assets into yen and buying JGBs is more attractive.”

The central bank is scooping up 80 trillion yen a year of government bonds as it seeks to hold down yields and achieve 2 percent inflation. Even as interest payments stay low for domestic buyers, foreign investors have been able to pick up greater cash flows thanks to swap markets.

The yield on two-year JGBs was minus 0.025 percent on Thursday. Adjusted for payments to lend dollars and borrow yen, the fixed-coupon equivalent was 1.7 percent. That far exceeds similar-maturity Treasury yields, even after they surged to a five-year high of 1 percent as the Federal Reserve raised interest rates for the first time in almost a decade.

— With assistance by Chikako Mogi, and Toru Fujioka

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